The Big Story: Congress must act after Privacy Shield rollback leaves startups without certainty. A Senate panel held a hearing this week to examine ways of creating a new transatlantic data transfer pact after Europe’s top court struck down the EU-U.S. Privacy Shield earlier this year. The cross-border data pact allowed U.S. companies to process and store European users’ data in America, and the rollback of the agreement is already having adverse effects for thousands of startups and tech companies.
Although a new deal is still likely months away, members of the Senate Commerce Committee met to discuss the impact of the Privacy Shield invalidation, as well as what Congress and federal officials can do to develop a successor agreement. Some members of the panel pointed to the need for a federal data privacy law, and others suggested that changes to existing U.S. surveillance laws were needed to foster greater international trust. The Privacy Shield rollback is the second time that Europe’s top court has rejected an EU-U.S. data transfer pact on the grounds that U.S. surveillance efforts violate EU law, and American officials will likely need to overhaul existing surveillance programs before a permanent data agreement can be reached.
Cross-border data flows are critical to companies of all sizes, and streamlined compliance mechanisms are especially helpful to small businesses that don’t have the legal resources of their larger competitors. Tech companies all across the U.S. relied upon Privacy Shield in order to operate in the EU, and the pact’s demise means that many startups could be forced to abandon the European market or find alternative ways to handle European users’ data. Small- to medium-sized companies made up approximately 70 percent of the U.S. firms that relied upon Privacy Shield, while larger firms typically rely on individual data transfer agreements—known as Standard Contractual Clauses (SCCs).
In order to ensure that startups have the ability to scale globally, Congress needs to work to address some of the deficiencies in the U.S.’s current privacy protections. This includes passing a comprehensive federal privacy law that provides startups and users alike with uniform protections and obligations, as well as passing reforms to government surveillance programs that continue to jeopardize cross-border data flows. Only by addressing the bloc’s surveillance concerns—and establishing clear rules of the road for domestic data use—will policymakers be able to provide startups and other tech companies with the certainty they need to engage with users across the globe.
Policy Roundup:
FTC, states file antitrust lawsuits against Facebook. The Federal Trade Commission and 48 attorneys general filed lawsuits against Facebook this week, alleging that the social media giant has engaged in anti-competitive practices to acquire rival companies and has abused its power in the digital marketplace. In its lawsuit, the FTC—which approved Facebook’s Instagram and WhatsApp acquisitions—asked the federal court to force the social media company to divest the platforms as independent businesses. While policymakers and other regulators have raised understandable questions about the business practices of large companies, the growing focus on acquisitions as indicators of anti-competitive practices could create further uncertainty for the startup community. Acquisitions often serve as a profitable exit strategy for companies or as a lifeline for struggling startups, and blocking these types of deals or injecting uncertainty into the process will harm the ability for early-stage companies to raise needed investments.
Graham pulls flawed Section 230, copyright legislation. Senate Judiciary Committee Chairman Lindsey Graham (R-S.C.) stopped a vote yesterday on the Online Content Policy Modernization Act (OCPMA)—legislation that would have weakened Section 230 and created a new, imbalanced forum for copyright infringement accusations. As we previously noted, the OCPMA would have forced Internet companies to choose between facing expensive and potentially ruinous lawsuits, or leaving up harmful user-generated content that they would otherwise remove.
Simington confirmation raises prospect of deadlocked FCC. The Senate voted along party lines to confirm Nathan Simington to the Federal Communications Commission. Simington’s confirmation means that the agency will be deadlocked between two Democratic commissioners and two Republican commissioners. If Senate Republicans impede efforts to confirm a third Democratic commissioner early on in President-elect Joe Biden’s term, the independent agency could be unable to do its work as a result of the political gridlock.
House and Senate pass defense bill without Section 230 repeal, despite veto threat. The House and Senate passed a $741 billion defense spending bill this week with veto-proof majorities in both chambers, despite President Donald Trump’s threat to veto the legislation if it does not include a repeal of Section 230. Although Trump and some Republican lawmakers have falsely criticized the bedrock Internet law for allowing big tech companies to “censor” conservative users online, any changes to Section 230 would have an outsized impact on U.S. startups that rely on the law’s liability limitations to host and moderate user content.
Internet companies concerned about inclusion of CASE Act in spending bill. Congressional lawmakers are reportedly attempting to include several controversial copyright- and trademark-related measures, including the CASE Act, in a year-end omnibus spending bill. The CASE Act—which would create a new, imbalanced venue for certain copyright holders to raise infringement allegations—will further incentivize bad faith copyright infringement claims. Earlier this week, a group of seven Internet companies sent a letter to policymakers expressing concern about the legislation’s inclusion in the must-pass spending bill and the harmful impact that it will have on Internet users and smaller digital creators.
Startup Roundup:
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